As the world of (re)insurance becomes a smaller place with consolidation fever showing no signs of letting up, it is also becoming ever more complex.

Two of the biggest changes which have taken place over the past decade are the emergence of finite (re)insurance and, more recently, the idea that the capital markets can be tapped to add capital to insurance markets through risk securitisation. Both these areas are examined in this edition.

(Re)insurers have had to face some hard facts in soft times. With risk managers becoming increasingly sophisticated in recent years, well and truly shrugging off the "insurance buyer" tag, (re)insurers are having to position themselves as value-added partners, able to provide, among other things, non-traditional products such as finite risk (re)insurance and derivative products.

A far cry from the late 1980s when a certain Steven Gluckstern and Michael Palm pioneered the notion of finite (re)insurance. There were plenty of doubters at the time who reckoned it would never work; or if it did, it would only muster a modest imprint. The same doubters, one presumes, who were once dismissive of electronic transfer. Where are they now, that is the question. Either in retirement, or eating their words.

As Peter A. Gentile, president and ceo of Gerling Global Financial Products points out in "Infinite possibilities" (page 60) finite risk reinsurance "has broadened the definition and the application of reinsurance, providing insurance companies, corporations and others with new methods to share risk, to unlock capital and to find new sources of capital."

Now, with the introduction of securitisation techniques, this development continues. Mr Gluckstern recently remarked that, "you stop and the world is just going to run by you." In an increasingly small (re)insurance world this could prove fatal.

Among the many moving with the times is Swiss Re which celebrates the first anniversary of Swiss Re New Markets (SRNM) this July. Established to centralise the group's alternative risk transfer and risk financing resources for larger corporations and insurers, the division has gone from strength to strength. In our interview with head of corporate marketing, Willy Hersberger, (page 27) it is made clear that this is not a case of going against the traditional market; rather, it is working with it. As Mr Hersberger puts it: "SRNM's idea is not to replace traditional risk transfer generally by non-traditional (alternative) products. Rather, we try to blend traditional and non-traditional risk financing modules into integrated packages that optimise the corporations' capital efficiency in respect of their retained risk basket."

Which brings us to an interesting point. Most reinsurers today prefer not to use the word "product". It is not a dirty word; simply an outdated one. Packages, customised deals, blended modules, whatever you want to call them, are the order of the day.

It is getting to the stage that the terms traditional and non-traditional (aka alternative) are also becoming old hat. In his preview of the Luxembourg Rendez-vous, (page 117) Chris Best of the Risk & Insurance Research Group speaks for many when he remarks that: "In a future in which insurance will play a lesser role than in the past and businesses will have to access a wide variety of instruments to satisfy their risk funding needs, it will become increasingly absurd to describe what is evidently normal, commonplace, standard and inevitable practice as alternative risk transfer. Insurance as we have known it is on the way out."

The captive market, meanwhile, continues to prosper. In her introduction to our survey of European captive domiciles, (page 87) Corinne Ramming, editor of the 1998 Captive Insurance Company Directory published by Tillinghast-Towers Perrin, points out that around 300 new captives were formed worldwide last year. 1998 is already shaping up for another bumper captive crop. All this despite an intensely soft market and continuing challenges from tax authorities. Ms Ramming believes: "The main reason appears to be that in today's sophisticated business environment, managers like to have maximum control of their risks, customising coverages to fit their needs. They also like to control their investment income."

Which echoes my original point - an increasingly sophisticated risk management community is making the world a much more complex place for (re)insurers.

Watching the markets

As well as the mature markets of Germany and Switzerland, we also cover Lithuania and the Czech Republic in this edition. Lithuania's insurance sector has grown rapidly in recent years, as Ben Harvey and Rimvydas Jogela explain in their article, "Lithuania: Europe's crossroads" (page 38). Despite this, the sector remains under-developed. However, as the authors point out, a law on compulsory third party liability motor insurance is likely to be passed this year, which is expected to boost non-life premiums even more and "is likely to be crucial to the attraction of significant foreign investment into the market in the coming years."

As for the Czech Republic, the market continues to develop. In "Passing the flood test" (page 40), Ivan Ko(breve)cárnik remarks that the Republic has come a long way to bring its insurance laws in line with the EU, although there is still work to be done. The message is that "the Czech insurance market, which ranked among the most advanced in the period before World War II, is again destined to become fully competitive in the demanding EU environment."

Bancassurance is also under the spotlight this edition. As SCOR's Yves Monmoton explains in his article, "Bancassurance and beyond", (page 65) what was just a new expression banded about in the specialist press 10 years ago is now a firmly established concept. "Bankers, like traditional insurers, are now convinced of the value of bancassurance," contends Mr Monmoton. The most spectacular recent example is Credit Suisse's takeover last year of Winterthur.

In Phil Zinkewicz's interview with Franklin W. Nutter, president of the Reinsurance Association of America (RAA), (page 54) the Glass Steagall Act is referred to which forbids any such affiliation in the US. Mr Nutter stresses that: "The RAA recognises that there is a synergy which exists between sophisticated financial institutions - banks, insurance companies, reinsurers, etc - and our goal is to see that laws are established or changed to accommodate that synergy.

"So far, Congress has failed to pass a financial deregulation law, but many believe that the recently announced merger between Citicorp and Travelers might provide greater impetus to the movement of allowing banks and insurers and reinsurers to mingle."

Welcome to the brave new world.

Valerie Denney is co-editor of this publication.